Where to Manufacture? – Product Development Tips

“Where to manufacture ?” If you’re doing product development, it’s a question that will come up sooner than later. Companies setting out to manufacture a new product often consider the following statements “We should manufacture locally so we don’t lose control over the product and support the local economy at the same time” or “We should manufacture overseas so we get the lowest possible product cost.” While these statements are valid under some circumstances, they don’t take into consideration all the variables involved in choosing the proper manufacturing location. When selecting a country to manufacture a product, answer the following questions and work through the process below to select the optimal manufacturing location.

List all the countries where the product will be sold and possibly manufactured

The objective of this task is to list all the places that the product will be sold and the countries that you could possibly manufacture the product. It is relatively easy to list all the countries where the product will be sold but more difficult to determine the countries where the product could be manufactured. The reason to list all these countries is to provide the finance team a list of potential countries of manufacture that will feed into their product cost calculations discussed in the last step below.

List all the manufacturing capability requirements

Every product has a unique set of fabrication requirements to successfully manufacture the product to the quality levels set by the product development team. The product could require special plastic fabrication techniques such as in-mold decorating or gas assist injection molding. The product could require assembly in a special clean room classifications and sterilization processes.

All the manufacturing capabilities required for the product should be listed by the engineering team. This list should then be cross referenced with the country list developed in the last step to determine if any of the countries should be crossed off as a potential place of manufacture. The team should ask themselves ‘Do the suppliers in each of these countries have the manufacturing capability required for the product?’ If none of the countries on the list has suppliers that have the capabilities, then it is necessary to research other countries that can fulfill the requirements. Perform sufficient research to determine where similar products are currently manufactured. For example, if the product being considered is a laptop or a printer, the country of manufacture is most likely China. This exercise will ensure that the remaining countries on the potential manufacturing list have the capabilities required.

Determine if adherence to country regulations is necessary

The next step in reducing the list of potential countries for manufacturing is to determine the special regulations that are required of your product. This could include manufacturing requirements, government regulations, or tax implications. Some examples of these regulations include:

• The United States Trade Agreement Act that determines from where products for the U.S. General Services Administration can be procured.
• Import restrictions and tariffs such as those in Brazil that make it most cost effective for Original Equipment Manufacturers (OEM) to manufacture locally.
• Sensitive technologies such as military products that must be manufactured in the country of origin.
• Hazardous or toxic substance regulations that cannot be shipped.

This list will then help you eliminate more countries from the list of potential locations.

Calculate the total landed cost for each country

After working through the first three steps of this process, a short list of potential countries for manufacturing exists. The next step is to set up a matrix that cross references the cost of manufacturing for each country of product sale.

It is important to estimate the product cost from the manufacturer as well as the actual total landed cost of the product to the country of sale. This is a detailed process which requires the finance and procurement team to identify potential suppliers in each potential country that have the capabilities to manufacture their product. Once the tangible cost estimates such as part cost, assembly, and shipping are provided, then the intangible costs such as product support costs and warranty must also be estimated. The resulting cost for each country can then be compared and a country can be selected based on input from the complete product development team.

Additional Resources:

http://www.connect.org/connectory.php - Local to the San Diego area “The Connectory.com has nearly 5000 local companies in our database to prove it. ”-Jo Marie Diamond

http://www.abc.net.au/catapult/askexpert/s1452071.htm - A decent Q&A with some areas to consider when choosing a country for manufacturing.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com